Bulletin n. 2-3/2012 | ||
October 2012-February 2013 | ||
Shih-Ying Wu and Mei-Jane Teng |
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Fiscal decentralization and multinational firms’ ownership: evidence from China | ||
in Economics of Governance , volume 13 n.3 , 2012 , 237-262 | ||
China’s fiscal decentralization increases the incentive for local governments to maintain economic prosperity and improve institutional environments for multinational firms. This study investigates the impact of fiscal decentralization on the ownership shares of multinational firms in China. Multinational firms located in regions with higher degrees of fiscal decentralization are found to own larger shares of their foreign subsidiaries. This result is consistent under various robustness checks, including instrumental variables estimations. The finding suggests that multinational firms respond to local fiscal decentralization by increasing their participation in investment. This study therefore provides additional evidence for the beneficial effect of fiscal decentralization on China’s economic growth by highlighting the risk-mitigating role of fiscal decentralization. | ||